Why is the housing crisis global?

Demand, Costs, and Regulation . . .

The one-handed economist

Gary @ YouTube gives one good answer: the rich are buying all the houses. So go watch that, to learn about one shift on the demand side. Shifts in demand are caused by, among other things, changes in income or taste. The rich have more income so they have shifted demand out.

On the supply side, there’s the rising cost of labor and materials (small effect) and NIMBY-ism/over-regulation (large effect). I’m a fan of relaxing regulations (e.g., minimal parking requirements or maximum densities).

Amsterdam has 800 people in its Department of Spatial Planning and Sustainability. I think they could do with 30 if they followed the Japanese model (podcast).

But I want to talk about another demand shifter: a taste for space

Let’s say that there are 100 housing units of 100m² each, with two people living in each. That’s 50m² per person, and supply and demand match (people can afford their spaces).

Now say that people want more space for themselves. Maybe they are staying single longer. Maybe they have hobbies. Maybe every kid needs their own room, not a shared room.

What we are seeing here, from a change in taste, is an increase in demand that can manifest much more quickly (mentally deciding “I like this, now”) than an increase in supply (=physically building more houses), so prices spike.

Now say that those 200 people want 100m² each. Now you need to double the number of 100m² units, which will take years. Even adding 10 percent to housing stock per year (very fast) will take ten years, so prices will stay high for quite some time!

That’s theory. How about data? Here is data from the US, UK and NL:

For the UK, m2/person was flat, but started higher than US/NL and ended lower. Read more here. In London, the HH size has fallen but m2 have gone up a little. That’s not necessarily cheaper, since now 2.5 people are sharing a bathroom/kitchen when it was 3.2 before (so 28% more needed).

The bad news is that some people seem to think that such big places are some sort of human right needing protection, that laws should require a minimum area/person, or that immigrants need to be tossed out of the country, to “free space” for the locals. (The US was GREAT in the 1950s, right — with 292sq ft/person!)

The good news (?) is that the increase in demand for area has slowed or fallen, because it’s too expensive. I still agree with Gary and do want to relax regulations, but let’s let people make choices on how many roommates to have, if they want to live in smaller spaces, etc.

Thats my one-handed explanation of the “crisis”: bourgeois tastes.